Trump’s Tariffs Are Changing Trade With China. Here Are 2 Emerging Endgames.

.. two potential paths for China seem to be emerging, according to participants in the trade negotiations and their advisers. Both would deliver trade wins for President Trump and his more moderate advisers, while also letting President Xi Jinping of China push ahead with his ambitious industrial plan to build national champions in cutting-edge technologies.

.. A stalemate appears the most likely endgame, with new American and Chinese tariffs staying in place for months or even years

.. A negotiated truce is also possible. Although the two sides remain far apart, Beijing has made subtle shifts to a more conciliatory position. China now appears willing to discuss changes to its strategic plan, Made in China 2025, which the Trump administration has identified as a long-term threat to big American industries like aircraft manufacturing, semiconductors and pharmaceuticals.

.. “The red line is China’s right to develop, not the concrete industrial policies and measures regarding Made in China 2025,”

.. They also worry that China is engaged in a rapid military buildup that would give Beijing ever more heft in Asia and around the world.

.. The tariffs address part of the president’s concerns, mainly by reducing American companies’ dependency on Chinese suppliers.

Doing the final assembly outside of China will allow companies to bypass the new American tariffs. It could also start to cut the deficit with China over the next couple years.
.. But these moves may not do much to the overall trade deficit of the United States, rearranging it instead to other countries. Companies are just relocating the last steps in production plans to places like Indonesia and Taiwan rather than bringing them back to the United States
Beijing will also retain a lot of leverage, given that the manufacturing of a long list of components, from wires and screws to electric motors and digital controls, will most likely remain in China.
..  It has noticed that while many companies are looking at ways to change locations for final assembly, not one seems to be moving the production of entire supply chains.

.. “They’re not looking at taking it out of China,” said David Hunter, the company’s chief executive. “They’re looking at where can they do the final transformation.”

.. Failure to reach a deal could weaken these moderates and further embolden hard-liners who advocate continuing China’s broad military buildup and its deployment of ever-harsher domestic security.

.. While the World Trade Organization has many rules to prevent governments from subsidizing companies directly, the rules are more vague on whether a state-run banking system can provide preferential loans. Such loans have been the core of Chinese industrial policy for many years, and continue to be under Made in China 2025.

.. “The trade war, as currently constituted, can go on for some time, and both economies can muddle through it without even strong effects.”